City had personal ties with administrator being investigated

Published: Thursday, February 27, 2014 at 4:30 p.m.

Last Modified: Thursday, February 27, 2014 at 3:28 p.m.

City of Lexington leaders say state recommendations and performance records led them to rely on a grant administrator recently tied to hundreds of thousands of dollars in misappropriated funds.

But officials deny that their community developer's former husband, who worked alongside grant administrator Michael Walser, contributed to the city's relationship with consultants used heavily in recent years.

The State Bureau of Investigation has launched an investigation into claims that Walser, a popular grant administrator throughout the Triad, approved dozens of duplicate payments and questionable invoices for his side businesses while overseeing Community Development Block Grant projects since 2007. A state audit released last week showed payments to Walser's companies tallied nearly $400,000 while he administered grants as a full-time employee of Hobbs, Upchurch and Associates, one of a small group of consultants that provide grant administration services in North Carolina.

Smaller local government agencies typically hire third-party administrators to oversee CDBGs, which are commonly used for projects such as low-income housing construction and infrastructure improvements.

Lexington officials, who say the city unknowingly paid $14,000 to one of Walser's side businesses in 2007, hired Hobbs, Upchurch's Lexington office to administer more than $6 million in CDBG projects in the mid-to-late 2000s. The city hired Hobbs, Upchurch more than any other grant consultants in the same time frame.

The city developed trust for Walser and his colleagues, who Lexington City Manager Alan Carson said received high praise from state grant officials and had performance records that outweighed competitors.

However, other factors now surfacing were also at play, including a personal relationship that raised questions about conflicts of interest.

Marriage prompts inquiry

During much of the city's business with Hobbs, Upchurch, the city's chief community developer, Tammy Absher, was married to Michael Kepley, who worked alongside Walser at the firm's Lexington office from January 2008 to the fall of 2012. Kepley and Absher divorced in April 2012 after being married for close to 10 years, according to court records.

Most CDBG projects are coordinated through Absher's office, which has historically worked with grant administrators to apply for and implement funding. City records show Absher, along with other staff, made recommendations to the city manager to hire Hobbs, Upchurch in the late 2000s, including during the four-year time frame Kepley and Absher were both married and working on grant projects professionally.

CDBG funding stems from the U.S. Department of Housing and Urban Development and is funneled through the state Department of Commerce. Federal guidelines, in addition to state statutes, bar grant recipients and their employees from having financial interests in contracts, either for themselves or their family members, according to HUD program administrative requirements.

Absher directed questions to Carson, and Kepley did not respond to an inquiry from The Dispatch.

In a recent interview with The Dispatch, Carson said the city was familiar with conflict of interest requirements and made a formal inquiry about the marriage to state commerce staff in 2008, when he said city officials learned Kepley began working for Hobbs, Upchurch. Carson said the city contacted commerce staff members Stephanie Morris, Dennis Branch and Iris Payne, who all, according to Carson, said everything checked out.

"All three felt like there was no conflict of interest, because (Absher) was not recommending the grant administrator to city council and wasn't forwarding the administrative contract," Carson said. In Lexington, the city manager makes the final recommendation to city council and signs all contracts.

The Dispatch contacted the Department of Commerce about the city's inquiry in 2008, but department spokeswoman Kim Genardo could not confirm the communication between the two entities. The Dispatch has also requested emails, letters and other correspondence about the marriage and inquiry from the City of Lexington.

After the inquiry to the state, Carson said the city also created an informal policy that the city manager would sign all paperwork relating to Hobbs, Upchurch business. He said it was another effort to avoid a conflict of interest.

"It made it harder, but made for a more transparent situation," Carson said. "It was looked at under a much finer microscope than it would have been normally. The interest we had was greater. It was more important to us that the state understood that and we were transparent."

Former manager denies conflict

Absher continued to review proposals throughout the late 2000s from administrators bidding for contracts and made recommendations to former city manager John Gray. In May 2009, for instance, after the inquiry to the state, Absher recommended hiring Hobbs, Upchurch for a $2.1 million CDBG for a neighborhood stabilization program as part of an information packet to city council. Gray made the final recommendation to council, which hired Hobbs, Upchurch for the project.

Gray, who retired as Lexington's manager in 2013, said Absher and Kepley's marriage did not impact the city's decisions on grant administrators.

"The reason we used Hobbs, Upchurch was because of (Walser's) reputation coming in," Gray said. "He had an excellent track record before he got to us. After that, the results were proven."

The City of Lexington was one of dozens of local governments that hired Hobbs, Upchurch and Walser to administer grants.

But while many municipal officials like Gray were pleased with Walser's work, others raised questions. In 2011, Yadkin County government alleged Hobbs, Upchurch falsified information as part of a $100,000 CDBG project being administered by Walser — complaints that led to multiple investigations and published reports that criticized the firm's work. Yadkin County officials were also among several municipalities suspicious of grant invoices involving Walser's companies in October 2012, which most recently led to the state audit and ongoing SBI investigation.

Auditors claimed Walser approved close to $400,000 in invoices for duplicate payments and questionable costs for his side businesses, including Tri-County Development. The City of Lexington paid Tri-County Development a total of $14,000 in 2007 for lead-abatement services at four homes included in a CDBG scattered site housing project.

Carson said city staff did not know the company was owned by Walser, adding that state monitors also did not raise any red flags when reviewing the city's records. It was only after reading a newspaper article, published five years later, that city officials say they learned he owned the company and worked quickly to cancel the contract with Hobbs, Upchurch in October 2012.

"If somebody's intent on misusing or mishandling funds, they can do it," Gray said, adding that the audit's findings are only allegations at this point. "They can get away with it, but normally for just a while. Normally, if there's been any kind of misuse of funds, public or private, in most cases it doesn't go undetected."

Colleague worked for city

After ending their relationship with Hobbs, Upchurch, Lexington officials were forced to pick another administrator to take up the five grants the firm was overseeing at the time. The first recommendation was Carolina Governmental Services, which Walser started with fellow Hobbs, Upchurch employee Amanda Whitaker after he, Whitaker and Kepley left the firm in 2012.

Gray recommended the city choose Carolina Governmental Services after a team of city employees, including Absher, reviewed several proposals from grant administrators. However, city council members tabled their vote on the issue in light of the swirling allegations into Walser's work and ultimately chose a different administrator, Stephen F. Austin.

Whitaker worked for the City of Lexington from May 2005 to May 2008 as a community development project coordinator. As part of her duties, she helped plan CDBG projects and informed city council members about initiatives at public meetings.

Whitaker, who did not respond to an inquiry from The Dispatch, went on to work for the Davidson County Economic Development Commission before taking a job with Hobbs, Upchurch, according to municipal documents.

Auditors say Walser, Whitaker and Kepley left Hobbs, Upchurch at the same time to work for Carolina Governmental Services, which has continued to oversee grants for municipalities. The company is administering two economic development CDBGs for the City of Thomasville and was on path to receive a contract from Davidson County government before the audit surfaced earlier this month.

Commerce Secretary Sharon Decker has said her department is taking steps to increase monitoring for local governments that rely on grant administrators. However, officials have not given recommendations to municipalities using, or considering using, Carolina Governmental Services.

Nash Dunn can be reached at 249-3981, ext. 227, or at nash.dunn@the-dispatch.com. Follow Nash on Twitter: @LexDispatchNash

<p>City of Lexington leaders say state recommendations and performance records led them to rely on a grant administrator recently tied to hundreds of thousands of dollars in misappropriated funds.</p><p>But officials deny that their community developer's former husband, who worked alongside grant administrator Michael Walser, contributed to the city's relationship with consultants used heavily in recent years.</p><p>The State Bureau of Investigation has launched an investigation into claims that Walser, a popular grant administrator throughout the Triad, approved dozens of duplicate payments and questionable invoices for his side businesses while overseeing Community Development Block Grant projects since 2007. A state audit released last week showed payments to Walser's companies tallied nearly $400,000 while he administered grants as a full-time employee of Hobbs, Upchurch and Associates, one of a small group of consultants that provide grant administration services in North Carolina.</p><p>Smaller local government agencies typically hire third-party administrators to oversee CDBGs, which are commonly used for projects such as low-income housing construction and infrastructure improvements.</p><p>Lexington officials, who say the city unknowingly paid $14,000 to one of Walser's side businesses in 2007, hired Hobbs, Upchurch's Lexington office to administer more than $6 million in CDBG projects in the mid-to-late 2000s. The city hired Hobbs, Upchurch more than any other grant consultants in the same time frame.</p><p>The city developed trust for Walser and his colleagues, who Lexington City Manager Alan Carson said received high praise from state grant officials and had performance records that outweighed competitors.</p><p>However, other factors now surfacing were also at play, including a personal relationship that raised questions about conflicts of interest.</p><p><B>Marriage prompts inquiry</B></p><p>During much of the city's business with Hobbs, Upchurch, the city's chief community developer, Tammy Absher, was married to Michael Kepley, who worked alongside Walser at the firm's Lexington office from January 2008 to the fall of 2012. Kepley and Absher divorced in April 2012 after being married for close to 10 years, according to court records.</p><p>Most CDBG projects are coordinated through Absher's office, which has historically worked with grant administrators to apply for and implement funding. City records show Absher, along with other staff, made recommendations to the city manager to hire Hobbs, Upchurch in the late 2000s, including during the four-year time frame Kepley and Absher were both married and working on grant projects professionally.</p><p>CDBG funding stems from the U.S. Department of Housing and Urban Development and is funneled through the state Department of Commerce. Federal guidelines, in addition to state statutes, bar grant recipients and their employees from having financial interests in contracts, either for themselves or their family members, according to HUD program administrative requirements.</p><p>Absher directed questions to Carson, and Kepley did not respond to an inquiry from The Dispatch.</p><p>In a recent interview with The Dispatch, Carson said the city was familiar with conflict of interest requirements and made a formal inquiry about the marriage to state commerce staff in 2008, when he said city officials learned Kepley began working for Hobbs, Upchurch. Carson said the city contacted commerce staff members Stephanie Morris, Dennis Branch and Iris Payne, who all, according to Carson, said everything checked out.</p><p>"All three felt like there was no conflict of interest, because (Absher) was not recommending the grant administrator to city council and wasn't forwarding the administrative contract," Carson said. In Lexington, the city manager makes the final recommendation to city council and signs all contracts.</p><p>The Dispatch contacted the Department of Commerce about the city's inquiry in 2008, but department spokeswoman Kim Genardo could not confirm the communication between the two entities. The Dispatch has also requested emails, letters and other correspondence about the marriage and inquiry from the City of Lexington.</p><p>After the inquiry to the state, Carson said the city also created an informal policy that the city manager would sign all paperwork relating to Hobbs, Upchurch business. He said it was another effort to avoid a conflict of interest.</p><p>"It made it harder, but made for a more transparent situation," Carson said. "It was looked at under a much finer microscope than it would have been normally. The interest we had was greater. It was more important to us that the state understood that and we were transparent."</p><p><B>Former manager denies conflict</B></p><p>Absher continued to review proposals throughout the late 2000s from administrators bidding for contracts and made recommendations to former city manager John Gray. In May 2009, for instance, after the inquiry to the state, Absher recommended hiring Hobbs, Upchurch for a $2.1 million CDBG for a neighborhood stabilization program as part of an information packet to city council. Gray made the final recommendation to council, which hired Hobbs, Upchurch for the project.</p><p>Gray, who retired as Lexington's manager in 2013, said Absher and Kepley's marriage did not impact the city's decisions on grant administrators.</p><p>"The reason we used Hobbs, Upchurch was because of (Walser's) reputation coming in," Gray said. "He had an excellent track record before he got to us. After that, the results were proven."</p><p>The City of Lexington was one of dozens of local governments that hired Hobbs, Upchurch and Walser to administer grants.</p><p>But while many municipal officials like Gray were pleased with Walser's work, others raised questions. In 2011, Yadkin County government alleged Hobbs, Upchurch falsified information as part of a $100,000 CDBG project being administered by Walser — complaints that led to multiple investigations and published reports that criticized the firm's work. Yadkin County officials were also among several municipalities suspicious of grant invoices involving Walser's companies in October 2012, which most recently led to the state audit and ongoing SBI investigation. </p><p>Auditors claimed Walser approved close to $400,000 in invoices for duplicate payments and questionable costs for his side businesses, including Tri-County Development. The City of Lexington paid Tri-County Development a total of $14,000 in 2007 for lead-abatement services at four homes included in a CDBG scattered site housing project. </p><p>Carson said city staff did not know the company was owned by Walser, adding that state monitors also did not raise any red flags when reviewing the city's records. It was only after reading a newspaper article, published five years later, that city officials say they learned he owned the company and worked quickly to cancel the contract with Hobbs, Upchurch in October 2012.</p><p>"If somebody's intent on misusing or mishandling funds, they can do it," Gray said, adding that the audit's findings are only allegations at this point. "They can get away with it, but normally for just a while. Normally, if there's been any kind of misuse of funds, public or private, in most cases it doesn't go undetected."</p><p><B>Colleague worked for city</B></p><p>After ending their relationship with Hobbs, Upchurch, Lexington officials were forced to pick another administrator to take up the five grants the firm was overseeing at the time. The first recommendation was Carolina Governmental Services, which Walser started with fellow Hobbs, Upchurch employee Amanda Whitaker after he, Whitaker and Kepley left the firm in 2012. </p><p>Gray recommended the city choose Carolina Governmental Services after a team of city employees, including Absher, reviewed several proposals from grant administrators. However, city council members tabled their vote on the issue in light of the swirling allegations into Walser's work and ultimately chose a different administrator, Stephen F. Austin. </p><p>Whitaker worked for the City of Lexington from May 2005 to May 2008 as a community development project coordinator. As part of her duties, she helped plan CDBG projects and informed city council members about initiatives at public meetings.</p><p>Whitaker, who did not respond to an inquiry from The Dispatch, went on to work for the Davidson County Economic Development Commission before taking a job with Hobbs, Upchurch, according to municipal documents. </p><p>Auditors say Walser, Whitaker and Kepley left Hobbs, Upchurch at the same time to work for Carolina Governmental Services, which has continued to oversee grants for municipalities. The company is administering two economic development CDBGs for the City of Thomasville and was on path to receive a contract from Davidson County government before the audit surfaced earlier this month.</p><p>Commerce Secretary Sharon Decker has said her department is taking steps to increase monitoring for local governments that rely on grant administrators. However, officials have not given recommendations to municipalities using, or considering using, Carolina Governmental Services.</p><p>Nash Dunn can be reached at 249-3981, ext. 227, or at nash.dunn@the-dispatch.com. Follow Nash on Twitter: @LexDispatchNash</p>